Excess Roth IRA Contribution in 2021 and 2022

[ww_94]

I need some help with figuring out how to fix the exceeded Roth IRA contributions I made in 2021 and 2022.  I have not yet taken any action yet as I'm trying to figure out the next steps.

Summary:

• 2021: Made excess contribution of $1,764 (exceeding reduced Roth IRA limit)
• 2022: Made excess contribution of $148.4 (exceeding reduced Roth IRA limit)
• 2023: Did not quality for any the Roth IRA contribution (no contributions were made)

Both of these were missed in last 3 years of tax returns. 

Questions:

1. How much should I be withdrawing now in 2024? Would it be ($1,764 + $148.4) + earnings?
   •  Can I withdraw this back into my savings? I didn't quality for any Roth IRA contribution for 2023 to roll over.
2. How would I calculate the 6% penalty for the two excess contributions over each of the years?
   
   • Is the 6% penalty on the contribution + earning?
   • Do I need to pay penalty for 2023? 
   • ex. For 2022 Form 5329, I'll have to pay 6% on the 2021 + 2022 excess ($114.74 not including earning)
3. Will a previous year's From 5329 covers both excess contributions?
   • ex. one 2021 Form 5329 for 2021's excess, and one 2022 Form 5329 to cover 2021 + 2022's excess.
   • Would I need to fill out one for 2023? 
   • Can these forms (and penalty)  be submitted (and paid) directly from TurboTax? I still have the previous versions.
4. I read that once I withdraw the excess contributions, I would receive the 2024 1099-R the following year (2025). I think this cuts close into the 3 year deadline of amending tax returns (for 2021's). Is there a way to manually fill out the 1099-R on TurboTax? How should the fields be filled? 

[Mike9241]

did you submit your return for 2021 because the 5329 should have been included? If you filed without it you'll need to amend to include the 5329 which will show the 1764 excess subject to the 6% tax. the IRS will bill you for any penalties and interest for late payment.

for 2022 the same thing except that it shows both the excess for 2021 and the excess for 2022 subject to the 6% penalty. again the IRS will bill you for penalties and interest. For 2023 you must withdraw the excess by 10/15/2024 + earnings on the excess. the earnings will be taxable in 2024.  contact the custodian to inform them you're withdrawing excess contributions + earnings and ask them to calculate the earnings.

[fanfare]

after tax due date including extensions: you distribute the excess amount being carried forward on 5329,
(or offset it with currently allowed contribution) .
An amended return will be needed supplying Form 5329 since there is a 6% penalty per year on excess contributions .
Earnings stay in the Roth account.

This applies to 2021 and 2022, and 2023

since your excess remained in the account through 2023.

Resolution of the excess now would be reported on your 2024 tax return.

@ww_94 

[fanfare]

I updated the last part of my reply.

@ww_94 

[fanfare]

To amend on paper,

you don't have to attach revised 1040, but you have to attach new or changed forms.

In this case the new or changed forms are Schedule 2 and Form 5329.

@ww_94 

[ww_94]

@fanfare So to make sure I'm understanding you correctly:

1. Withdraw only the contributions I made to the Roth IRA (2021 + 2022 contributions)

2. Fill out a 5329 for 2021, 2022 and 2023 each with a 6% penalty 

3. I plan to amend online/desktop. I had filed using the desktop TurboTax

• I plan to withdraw within the next few weeks (01/2024). Will I need to pay the 6% penalty for 2024 tax return? 
• I read that I'd need to wait until 2024 to receive my 2024 1099-R. Do you know if I can amend my 2021, 2022 + complete my 2023 tax returns now by filling out my own 1099-R? 
• I am under 60 so I believe I will need to pay the 10% early withdraw fee. Is this a one time fee for when I fill out 2024's tax return?

[ww_94]

@Mike9241 

did you submit your return for 2021 because the 5329 should have been included? If you filed without it you'll need to amend to include the 5329 which will show the 1764 excess subject to the 6% tax

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I didn't not. My understanding is that I will need to amend the 2021 tax return with a 1099-R in order to fill out a 5239 and pay the 6% penalty. 

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the IRS will bill you for any penalties and interest for late payment.

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Will I be able to pay for the 6% penalty in TurboTax itself when I amend the return? 

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For 2023 you must withdraw the excess by 10/15/2024 + earnings on the excess. the earnings will be taxable in 2024.  contact the custodian to inform them you're withdrawing excess contributions + earnings and ask them to calculate the earnings.

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This was an excess contribution to a Roth IRA so I believe I only need to withdraw the excess contributions from 2021 + 2022 and not any earnings. Based on @fanfare , I have already past the deadline to withdraw by 2023 so I believe I will be also incurring a 6% penalty for 2023 as well. 

[fanfare]

1 yes

2 yes

if you did not file 2023 yet there would be no reason to amend.

there is never an early withdrawal penalty for taking out your contributions.

removal resolves the excess and ends the penalty.

you may be able to e-file 2022 1040-x after turbotax opens amendments,

since a few others have reported success with that (prior year amendment).

2021 will probably require paper filing.

You don't need a 1099-R for any of this.

You won't get a 1099-R until 2025.

@ww_94 

[ww_94]

@fanfare 

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if you did not file 2023 yet there would be no reason to amend.

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 How do I pay the 6% penalty for 2023? Will Turbotax ask if I need to fill out a 5329 Form when I complete 2023's tax return this  year? 

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You don't need a 1099-R for any of this.

You won't get a 1099-R until 2025.

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I tried amending my 2023 tax return on the desktop TurboTax and there's a section asking for a 1099-R. How would I get the section on filling out a 5329 Form? 

[fanfare]

if you use the desktop you should be able to open 5329 in Forms mode and fill it out.

or

if you amend 2022 and import that into 2023 filing, it should bring along the Form 5329

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Use the  IRS "Make a payment" page to pay your tax, or send a check.

@ww_94 

[fanfare]

If you find yourself struggling with the Turbotax amend process it would be easy enough to get the required forms in editable PDF from the IRS website and fill them out manually.

You will need a paper copy of the original returns.

@ww_94 

[ww_94]

@fanfare  Thank you so much for your help. This was extremely helpful.

To confirm:

1. I'll only need to amend 2021 & 2022 Tax Returns with a 5329 showing the 6% penalty. I won't need to attach a 2024 1099-R since the withdraw of excess contribution was made long after the 2021 & 2022 tax (and extended) deadline. 

2. For 2023's Tax Return, I should have a 5329 Form filled out with the 6% penalty when I enter my excess contributions from previous years (2021 + 2022) that had not yet been taken out by end of 2023.  I won't need to attach a 2024 1099-R for the same reasons as above + the 2024 1099-R does not apply to removal of any excess contributions made in 2023. 

3. For 2024's Tax Return, I believe the excess contributions from 2023 will roll over to 2024 (as #18 on Part 1V of 5329) but this should be balanced out by the 2024 1099-R I receive. I shouldn't be taxed on the 2024 1099-R distribution and I shouldn't have a 6% penalty. 

[fanfare]

You got it.

2021 will show the first excess, 2022 will show the first and the second excess.

[Alvin8104]

When will the form 5329T be available to file. Date says 1/24/2024. 

I can't efil my return because of this.

Is there any update

[DoninGA]

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@Alvin8104 wrote:

When will the form 5329T be available to file. Date says 1/24/2024. 

I can't efil my return because of this.

Is there any update

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Even though the date of the TurboTax website shows 01/24, TurboTax normally updates their software on a Thursday.  So check back tomorrow on 01/25.